South Carolina finances strong, Haley says

COLUMBIA --- South Carolina Gov. Nikki Haley on Wednesday tried to reassure Wall Street credit analysts that the state's finances are strong and far better than the federal government's.

If "there was anything that I am thrilled about is there is an absolute stark contrast between where we're going in our financial condition in South Carolina and where the federal government is going," Haley said. "While they continue to go into somewhat of chaos, we are going to continue to become more independent and solvent in the way we conduct our affairs."

Haley's financial summit with Moody's Investment Services came a week after the rating agency said a federal default could cost the state its top credit rating.

The meeting had been planned before last week's threat of rating downgrades for South Carolina, Maryland, New Mexico, Tennessee and Virginia. All have Aaa rankings that give them the best rates when they borrow for everything from roads and sewer projects to schools.

Bob Kurtter, one of Moody's managing directors, told The Associated Press in an interview that the concern for South Carolina largely revolves around the state's reserves, federal payrolls and Medicaid payments if the federal government defaults and can't pay its bills.

Medicaid is a federal-state program for the disabled, elderly and poor, and the federal government matches South Carolina payments mostly on a three-to-one basis. A reduction in those payments would blow holes in South Carolina's budget. The state's unemployment rate -- 10 percent in May -- remained among the highest in the nation. Meanwhile, the state's 17 percent poverty rate is well above the nation's 14 percent. The combination means one in five South Carolina residents get Medicaid benefits.

Kurtter said Moody's isn't saying South Carolina has problems or that its bondholders are at risk. "What we're saying is that we think we want to look more closely at South Carolina to see its linkages to the federal government; its sensitivity to federal actions that may occur around deficit reduction or disruptions that could occur to the market if the federal government were to default," he said.

Haley emphasized to Moody's analysts that South Carolina's financial picture is brighter than it has been in years. For instance, budget writers started the year fretting an $800 million shortfall for the budget that took effect July 1. Instead, they ended up with surplus cash.

State Comptroller General Richard Eckstrom said the state's reserves -- another concern for Moody's -- are growing. But details won't be known for a few weeks.